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India signs capital gains tax pact with Singapore

K.R. Srivats

New Delhi , July 1

CAPITAL gains arising to a Singapore resident on sale of shares of Indian companies would not be taxable in India. This is because India has agreed to extend Mauritius-like `capital gains' tax concession to Singapore through a protocol.

Consequent to this protocol, capital gains derived by a Singapore resident would be liable to tax only in Singapore. At present, there is no capital gains tax in Singapore, so in effect such gains would not be taxed even in Singapore.

Official sources said that this concession has been made co-terminus with the India-Mauritius Double Taxation Avoidance Convention and would be available to Singapore only till such time as the capital gains tax concession continues to be extended to Mauritius.

Under India's existing double taxation avoidance agreement with Mauritius, capital gains from sale of shares are liable to tax in the country of residence of the investor.

Meanwhile, Singapore has agreed to incorporate anti-abuse provisions in the protocol and to share with India whatever information it is competent to obtain for its own purposes under its law.

On mutual funds, the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) provides that asset managers established in India or Singapore and offering mutual funds to investors in India have been permitted to invest $250 million in equities and instruments in the Singapore Stock Exchange over and above the existing cap of $1 billion allowed for all mutual funds put together.

Under banking, India has also agreed to commit to Singapore the foreign direct investment limit (FDI) of 74 per cent in banking, both FDI and FII put together, subject to the limitation of `one mode of presence.'

Further, India has agreed to accord the same treatment to wholly owned subsidiaries of Singaporean banks as it does to its banks on branching, places of operation and prudential requirements.

Singapore has also agreed to grant qualified full banking privileges to three Indian banks with or without operations in Singapore.

In the schedule of commitments for financial services sector, India has offered commitments allowing 26 per cent foreign equity for life and non-life insurance.

On customs, the India-Singapore CECA provides that each party would undertake customs compliance activities at the time of entry normally not exceeding five per cent of the total customs transactions.

The parties to the customs agreement have also agreed to provide advance rulings.

Further, an understanding has been reached on sharing of information in cases where there is reasonable suspicion of circumvention of rules for under-invoicing/over-invoicing.

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